The Hindu Editorial Analysis
06 February 2025
(Source – The Hindu, International Edition – Page No. – 6)
Topic : GS 3: Government Budgeting
Context
- Positive Moves: The Union Budget features several positive measures aimed at enhancing growth.
- Nominal GDP Growth Projection: The forecasted nominal GDP growth of 10.1% for 2025-26 is seen as reasonable, backed by the Economic Survey’s projected real GDP growth of 6.3%-6.8%.
Key Budget Highlights
- Capital Expenditure:
- Planned capital expenditure for 2025-26 is ₹11.2 lakh crore, very similar to the previous year’s estimate of ₹11.1 lakh crore.
- An increase over the revised estimates of ₹1.03 lakh crore is noted, but it’s not significantly different from the last budget.
- Growth Ambitions:
- The budget aims to accelerate economic growth to transition towards developed nation status, with a required real growth rate estimated at 8%.
- A concrete increase in the growth rate is deemed essential for future progress.
- Middle-Class Relief:
- Income tax concessions for the middle class are seen as a positive step, though their impact on overall demand is contingent on household consumption behaviors.
Challenges Ahead
- Tax Revenue Trends:
- There has been a worrying downward trend in gross tax revenue (GTR) growth, falling from 13.5% in 2023-24 to an anticipated 10.8% in 2025-26.
- Decline in GST growth from 12.7% to around 10.9% raises concerns about revenue sustainability.
- Shift Towards Direct Taxes:
- Encouragingly, the share of direct taxes has risen, moving from 52% in 2021-22 to a projected 59% in 2025-26.
- Personal income tax is outperforming corporate income tax but shows a gradual decline in growth.
Government Expenditure Insights
- Growth in total government expenditure has decreased, with a notable reduction in expenditure as a percentage of GDP—from 14.6% to 14.2%—due to fiscal consolidation.
- Significant improvements have been made in the quality of government expenditure, with a higher share of capital expenditures.
Emerging Technologies and AI
- There’s a crucial need for investment in AI infrastructure.
- The Indian government is encouraged to incentivize technology companies to invest in AI research and development through tax benefits.
Concerns Over Fiscal Indicators
- Fiscal Prudence Shift: The shift from focusing on fiscal deficit to a debt-GDP ratio is critiqued as a less transparent measure.
- Lack of clear glide paths for the fiscal deficit raises concerns about fiscal accountability and transparency.
Conclusion
- The editorial advocates for clear fiscal deficit targets and outlined paths to ensure transparency.
- Emphasizing a larger government claim on investable resources could hinder private sector investment opportunities.